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Tag Archives: Oil Industry

This article appeared online at TheNewAmerican.com on Friday, December 29, 2017:

Part of the Permian Basin in west Texas

A federal appeals court refused on Wednesday to reconsider its decision to overturn an Obama administration rule on fracking, holding that the issue was moot: The Trump administration is planning to throw out the rule altogether in January.

The Bureau of Land Management (BLM) said that the Obama administration’s rule “unnecessarily burdens industry compliance costs and information requirements that are duplicative of regulatory programs of many states and some tribes. As a result, we are proposing to rescind, in its entirety, the [Obama administration’s] 2015 final rule.”

The original decision in 2016 ruled that the Obama administration was guilty of federal overreach,

This article was published by The McAlvany Intelligence Advisor on Friday, December 29, 2017:

English: Pumpjack east of Andrews, TX

Just a few years ago, the Permian Basin was considered nearly depleted. But with the advent of fracking technology, the enormous basin – called a “super basin” – could now contain two trillion barrels of recoverable crude oil. That is more than the reserves of Saudi Arabia’s Aramco oil field and all of Venezuela’s proven reserves put together. IHS Markit, the world leader in information gathering and analysis, just announced that the Permian Basin’s production exceeded its previous high registered back in 1973, producing a record 815 million barrels of oil in 2017. It estimates that its daily production will approach 3 million barrels a day (mbd) next year, which will set another record of a billion barrels produced in single year.

This far exceeds the requirements for any oil basin to quality as a “super basin”: 5 billion in reserves and 5 billion in accumulated production. It also far exceeds the reserves of Saudi Arabia’s Aramco oil field (265 billion) and those of Venezuela (300 billion).

It’s also a “disrupter,” according to Pete Stark, a director of IHS: “When we consider the impact on the world’s crude markets, the Permian has to be considered a global disrupter.” IHS’ Reed Olmstead added:

This article appeared online at TheNewAmerican.com on Tuesday, December 26, 2017:

The same day that OPEC announced it would be extending its production cut agreement through the end of next year, the U.S. Energy Information Administration (EIA) announced that U.S. crude oil production jumped an astonishing 290,000 barrels per day from August levels.

Oil traders yawned and drove the price of crude higher. After all, it was a one-month spike, and compliance among both OPEC members and non-members remained surprisingly high. The agreement was taking crude oil off the market faster than producers were adding it. Voila! Increased demand coupled with decreased supply equals higher prices. Futures moved higher with Brent (prices set in London) moving past $62 a barrel with West Texas Intermediate (WTI, prices set in Cushing, Oklahoma) approaching $60.

Those traders were happy to ignore the increase in rig counts in the United States, and the more than 1,000 new horizontal wells being developed as a result — the highest seen since March 2015.

But all three official observers of the world’s crude oil market had a surprise waiting:

This article appeared online at TheNewAmerican.com on Wednesday, December 20, 2017:

Part of the motivation by Republicans to open the Arctic National Wildlife Refuge (ANWR) to energy development — off limits for nearly 40 years thanks to environmental extremists and the Obama administration — is to use lease fees to offset the deficits in the tax reform bill.

The numbers coming from the Congressional Budget Office (CBO) are impressive. Leasing even a tiny part of the tiny part that “Section 1002” represents of the total ANWR acreage would produce $2.2 billion in revenues over the next 10 years, to be split evenly between Alaska and the federal government.

Alaska’s Republican Senator Lisa Murkowski said in a speech on the floor of the Senate late Tuesday night that

This article appeared online at TheNewAmerican.com on Monday, October 16, 2017:

Chris Watling, the CEO of Longview Economics, told CNBC on Friday that Saudi Arabia should hasten the sale of part of its Aramco oil company while the price of crude is still high: “I think they need to get it away quick before oil goes to $10 [per barrel].” Added Watling: “We forget, don’t we? 120 years ago the world didn’t live on oil. Oil hasn’t always driven the global economy. The point is, alternative energy in some form is gathering speed.… Things are changing.”

Watling’s views coincide with those of Bloomberg New Energy Finance (BNEF) in their just-released 2017 Long Term Electric Vehicle Outlook, which concluded that by 2040

Ed Morse, Citigroup’s head of commodity research, told a Bloomberg television audience last week that OPEC’s position “is not sustainable over a long period. In the end, the markets are going to win, and [the winner] is going to be shale. If we’re in a $40 to $45 world, we’ll have enough drilling to add to the [world’s] surplus.”

Morse is reiterating the mantra sung for years: OPEC has long since run out of options and has all but lost its monopoly influence over world crude oil prices. If it reduces supply, prices go up, making U.S. frackers more profitable and inviting more capital in to expand production. If it increases supply, the lower prices cut further into each member’s cash flow, forcing them to continue to deficit spend without gaining any advantage over the Americans.

The breakeven point for U.S. frackers has been estimated to be between $40 and $50 a barrel. On Friday U.S. crude oil closed at $49 a barrel on the New York Mercantile Exchange (NYMEX – see floor photo above).

Now OPEC is faced with another challenge from the American oil industry:

This article appeared online at TheNewAmerican.com on Monday, July 3, 2017:

Map of the territory and area covered by present-day Saudi Arabia.

The world’s price of crude oil fell farther in the first six months of 2017 than in any six-month period in the last 19 years. From its peak in January it dropped by more than 21 percent by the middle of June, qualifying it in Wall Street jargon as a “bear market.”

This isn’t part of OPEC’s plan. The once-influential cartel was sure that by taking 1.8 million barrels a day of crude oil production off the world markets, the world price of oil would shortly hit its target of $60. And it almost made it, rising to $57 a barrel before beginning its long and crushing decline.

OPEC was sabotaged not only by noncompliance among its members and production from those to which it gave a pass (Libya and Nigeria), who produced more than was expected, but also by

Now that “everyone is on board” with a nine-month extension of last November’s agreement to cut production by OPEC, tomorrow’s meeting of the cartel in Vienna is expected to rubber-stamp that extension. Saudi Arabia’s oil minister, Khalid al-Falih, upon returning from Iraq on Monday, said, “We think we have everybody on board. Everybody I’ve talked to indicated that nine months [is] a wise decision.”

Iraq was the most egregious cheater under the November agreement, first complaining that the production numbers upon which its “participation” was based were too high, and then being very slow in implementing those cuts. The slack was picked up by Saudi Arabia, which cut more than it agreed to.

This article was published by The McAlvany Intelligence Advisor on Friday, April 21, 2017:

Marxist Nicolas Maduro

Andres Malave grew up in Caracas until Chavez took over. Then he and his family were able to escape – barely – to the US. Wrote Malave, “It was a hard choice, but in hindsight, we were the lucky ones.”

Now he laments the blind eye many Americans turn towards the rioting, the deaths, the crime, the economic devastation, and the ravages of inflation that Venezuela is suffering:

This article appeared online at TheNewAmerican.com on Thursday, April 20, 2017:

Following the government’s confiscation of its parts plant, General Motors announced on Wednesday it was ceasing all operations in Venezuela. The company said the seizure was illegal and that it would seek legal remedies.

The announcement puts 2,700 workers making replacement parts in the plant out of work, with small comfort coming from GM, which said it would make “separation payments” to those employees.

But what then? Another 3,900 people will likely find their jobs in jeopardy as the 79 car dealers that employ them will also shortly disappear in the aftermath of GM’s decision.

GM joins an ever-growing list of companies that can’t operate in the socialist paradise run by Marxist dictator Nicolás Maduro, including

This article was published by The McAlvany Intelligence Advisor on Wednesday, March 22, 2017:

A measure of the success – and failure – of OPEC’s agreement to limit crude oil production can be seen in the chart of NYMEX crude oil price behavior (Sources below) dating from last fall. When the agreement was inked back in November, crude was at $46.50 a barrel. The price soared and traders got excited, putting in long bets that set records.

By early January, reality began setting in as compliance among the cartel’s members and non-members (who agreed to go along for the ride) began to wane. The roof fell in a couple of weeks ago when inventory builds continued to set records, and the price dropped through support at $50.

In other words, in OPEC’s attempt to birth an elephant, it succeeded in birthing a gnat.

Saudi Arabia maintained a stiff upper lip during the Houston oil conference, stating flat out that

The joint U.S.-Canada statement issued by the White House on Tuesday permanently blocked 115 million acres of the Arctic Ocean — including all of the Chukchi Sea and the vast majority of the Beaufort Sea — from energy development. Said the statement:

This article appeared online at TheNewAmerican.com on Wednesday, December 14, 2016:

The U.S. Energy Information Administration (EIA) was hesitant to forecast where oil and gasoline prices might be in 2017. It said in its Short Term Energy Outlook published last week: “The values of futures and options contracts indicate significant uncertainty in the price outlook.”

Indeed they do. With a 95-percent confidence level, the EIA says the price of oil next year could vary anywhere between

This article appeared online at TheNewAmerican.com on Friday, August 19, 2016:

Energy traders looking for any sort of news that would push crude oil prices higher have found two slender reeds: a falling dollar (making American oil more expensive overseas), and a surprise report from the U.S. Energy Information Administration (EIA) showing shrinkage in the vast oversupply of crude and gasoline that has weighed on the market.

Accordingly, the price of Brent crude (priced in London) and West Texas Intermediate (priced in Oklahoma) jumped by more than 20 percent over the last week, putting it into “bull market” territory. It has led observers to conclude that

This article appeared online at TheNewAmerican.com on Wednesday, August 10, 2016:

In light of record supplies of gasoline and crude oil, why are prices rising? After hitting a low of $26 a barrel in January, crude oil topped $52 a barrel in early June, only to drop below $40 a barrel last week. The recent rise back above $40 is a head fake, according to oil analyst Stephen Schork, editor of the daily subscription Schork Report. The recent bounce forced massive short covering by traders convinced oil was headed back down to the $20s and had nothing to do with the fundamentals.

The fundamentals, according to Schork, are bearish for oil (and gasoline) prices, and not likely to change any time soon. Even the Energy Information Administration (EIA), the government’s watchdog agency in charge of predicting the future, has been forced to

Looking down from Heaven, George Mitchell must be pleased with what’s going on below: oil inventories are growing to the point where offshore tankers and railroad tank cars are having to be used for storage, oil and gas prices are dropping along with the costs of all the other 6,000 consumer products made from petroleum, rig counts are increasing, production costs are dropping, and, best of all, OPEC’s influence is waning daily.

The Economist called Mitchell the father of fracking in its eulogy following his death in July, 2013. They referred to him as

This wasn’t supposed to happen. When OPEC decided in November 2014 to keep producing crude oil at or near maximum rates, it was following an unspoken strategy to force the U.S. oil shale industry to back off. That would allow prices to rise back to levels needed to fund the cartel’s military adventures and their welfare states.

Marginal producers in the United States did declare bankruptcy, while other producers stacked most of their oil rigs, cutting daily production in the country from 9.7 million barrels per day (mpd) to 8.5 mpd. This caused crude oil prices to rise from the low 30s to the mid 50s.

This article appeared online at TheNewAmerican.com on Friday, July 8th, 2016:

Crude oil tanker SAFWA moored off Rotterdam.

Since the 1970s ban on exporting crude oil was lifted last December, the oil industry has given statists and anti-growth politicians a lesson in free markets: exports increased seven times their previous levels in just the first three months of 2016. And this in the face of an economy that is still suffering from the dregs of the Great Recession.

This was predicted by IHS (Information Handling Services), located near Denver, two years ago when the group stated that

This article appeared online at TheNewAmerican.com on Monday, February 29, 2016:

Energy producers are facing challenges that are threatening the existence of not only marginal, highly-leveraged producers, but large companies as well.

Canadian-based Suncor is just one example. Known for its Sunoco brand (now Petro-Canada), Canada’s largest crude-oil producer reported three weeks ago that it suffered a fourth-quarter loss of $1.45 billion and that it was slashing its capex (capital expenditures) for 2016 by 10 percent, forcing its expected 2016 production to fall by the same amount. It is also selling assets in order to keep paying its dividends to nervous investors. But Steve Williams, the company’s CEO, told equally nervous participants that “We will be one of the last guys standing.”

Lamar McKay, BP’s deputy chief executive, did the same: “Times are tough. You’d almost call them brutal right now. But we will adapt. We will make it.” This from the world’s sixth-largest oil and gas company which lost $6.5 billion in 2015 and was forced to lay off more than 3,000 employees.

John Hess, CEO of the Hess Corporation, also pumped his company’s resilience in the face of low crude prices. A much smaller company than BP, Hess Corporation suffered a loss of $3 billion last year, its first in more than a decade. Said Hess: “Our company has some of the best acreage [in North Dakota]. We can be more resilient as prices recover.”

Taken together, the oil industry worldwide has cut more than 300,000 jobs since the summer of 2014 (the peak of oil prices), while capex of nearly $1.5 trillion will be cancelled between 2015 and 2019, according to the conference sponsor. So far nearly 50 U.S. oil producers have filed for bankruptcy protection this year, with many more sure to follow this spring as banks readjust their reserve valuations used to back up their loans. This could imperil more than $17 billion in debt held by banks.

The most important revelation at the conference came from Saudi Arabia’s oil minister, Ali Al-Naimi, when he said that his country — despite rumors to the contrary that had driven crude oil prices temporarily higher — had absolutely no plans whatsoever to cut production in order to support higher prices. On that news alone, NYMEX crude oil fell $2 a barrel on Friday.

One of the problems facing these executives is the fact that frackers continue to produce in the face of falling rig counts and smaller workforces. Peak oil production touched 9.6 million barrels a day last year and remains at 9.1 million bpd. Daniel Yergin, the founder of Cambridge Energy Research Associates (CERA), now a subsidiary of IHS Inc., expects things to get worse — perhaps much worse — before they begin to get better:

This year is going to be very rough on the industry, very turbulent. We think that the decline in U.S. production is going to get more serious — another 600,000 to 800,000 barrels a day in this kind of price environment.

Globally the energy industry cut capex spending in 2015 by nearly 30 percent compared to 2014, while those in the United States have cut even further: an estimated 40 percent. For 2016, IHS CERA expects several large U.S. producers to cut spending by 50 percent compared to last year.

In the meantime, there’s another problem: where to store the surplus crude oil, estimated to be piling up at the rate of 1.5 to two million barrels every day. Empty tankers are being leased to store the surplus, called “floating storage,” waiting for demand to pick up (or supplies to dwindle). Now there is “rolling storage,” with 20,000 empty railroad tank cars sitting in sidings and storage yards across the country. Salt caverns and tankers are almost at capacity, and companies such as the Musket Corporation are taking advantage. Musket is a privately-held shipping company in Houston that built its business shipping crude oil by rail. But now it is in the storage business, finding and leasing empty tank cars to store the surplus until that “turnaround” day arrives, when demand exceeds production, and the surplus can be sopped up.

Since there is little evidence on the horizon to support higher crude oil prices, oil industry executives are running out of options and optimism. It will take more than a stiff upper lip to jawbone higher oil prices. In the meantime, for many it’s a matter of survival until that happy day arrives.

This article was published by The McAlvany Intelligence Advisor on Monday, February 29, 2016:

Cover of Pollyanna

Author Eleanor Porter would be proud. Not only did her 1913 children’s book Pollyanna establish the “Pollyanna Principle” (someone with an excessively optimistic outlook despite facing all manner of difficulties), it set in motion eleven sequels by Elizabeth Borton or Harriet Lammis Smith. There were movies starting Mary Pickford and Hayley Mills.

All three authors were present in Houston last week, at least in spirit. First,